Charter 2013 Annual Report Download - page 114

CHARTER COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2013, 2012 AND 2011
(dollars in millions, except share or per share data or where indicated)
F- 32
Included in net deferred tax liabilities above is net current deferred assets of $16 million and $18 million as of December 31, 2013
and 2012, respectively, included in prepaid expenses and other current assets in the accompanying consolidated balance sheets of
the Company. Net deferred tax liabilities included approximately $226 million and $219 million at December 31, 2013 and 2012,
respectively, relating to certain indirect subsidiaries of Charter Holdco that file separate federal or state income tax returns. The
remainder of the Company's net deferred tax liability arose from Charter's investment in Charter Holdco, and was largely attributable
to the characterization of franchises for financial reporting purposes as indefinite-lived.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. Due to the Company’s history of losses and the limitations imposed under Section
382 of the Code, discussed below, on Charter’s ability to use existing loss carryforwards in the future, valuation allowances have
been established except for future taxable income that will result from the reversal of existing temporary differences for which
deferred tax liabilities are recognized. Realization of deferred tax assets is dependent on generating sufficient taxable income
prior to expiration of the loss carryforwards. The amount of the deferred tax assets considered realizable and, therefore, reflected
in the consolidated balance sheet, would be increased at such time that it is more-likely-than-not future taxable income will be
realized during the carryforward period. At the time this consideration is met, an adjustment to reverse some portion of the existing
valuation allowance would result.
As of December 31, 2013, Charter and its indirect corporate subsidiaries had approximately $8.3 billion of federal tax net operating
loss carryforwards resulting in a gross deferred tax asset of approximately $2.9 billion. Federal tax net operating loss carryforwards
expire in the years 2021 through 2033. These losses resulted from the operations of Charter Holdco and its subsidiaries. In
addition, as of December 31, 2013, Charter and its indirect corporate subsidiaries had state tax net operating loss carryforwards,
resulting in a gross deferred tax asset (net of federal tax benefit) of approximately $276 million. State tax net operating loss
carryforwards generally expire in the years 2014 through 2033. Included in the loss carryforwards is $63 million of loss, the tax
benefit of which will be recorded through equity when realized as a reduction of income tax payable.
On May 1, 2013, Liberty Media Corporation (“Liberty Media”) completed its purchase of a 27% beneficial interest in Charter
(see Note 17). Upon closing, Charter experienced a second “ownership change” as defined in Section 382 of the Internal Revenue
Code resulting in a second set of limitations on Charter’s use of its existing federal and state net operating losses, capital losses,
and tax credit carryforwards. The first ownership change limitations that applied as a result of our emergence from bankruptcy in
2009 will also continue to apply. As of December 31, 2013, $2.1 billion of federal tax loss carryforwards are unrestricted and
available for Charter’s immediate use, while approximately $6.2 billion of federal tax loss carryforwards are still subject to Section
382 and other restrictions. Pursuant to these restrictions, Charter estimates that approximately $2.0 billion, $2.0 billion and $400
million in the years 2014 to 2016, respectively, and an additional $226 million annually over each of the next 8 years of federal
tax loss carryforwards should become unrestricted and available for Charter's use. Since the limitation amounts accumulate for
future use to the extent they are not utilized in any given year, Charter believes its loss carryforwards should become fully available
to offset future taxable income, if any. Charter’s state loss carryforwards and indirect corporate subsidiaries’ loss carryforwards
are subject to similar, but varying limitations on their future use. If the Company was to experience another “ownership change”
in the future, its ability to use its loss carryforwards could be subject to further limitations.